Dollar Surge Lifts Euro to Two-Month Low as Yield Hopes Rise

The dollar index has surged to a two-month high, marking its first consecutive weekly gain since June. The greenback's strength has pushed the euro to a two-month low of $1.1370 and put it on track for a third weekly decline, its worst losing streak since 2025.

Markets have aggressively repriced the interest rate trajectory after the Federal Reserve tightened policy last week, while robust economic data and fresh energy supply concerns have further strengthened that conviction. A bond selloff has also contributed to the dollar's rise, with long-dated US Treasury yields reaching their highest in more than 20 years.

Khoon Goh, head of Asia research at ANZ, noted that while higher yields should give the dollar a boost, ongoing concerns around the US fiscal position and policy making are still weighing on its rally. He added that 'there are still lingering concerns' that are preventing the dollar from continuing to rise.

The Japanese yen continues to hover near a three-week low at 158.8 per dollar after markets judged the Bank of Japan's rate hike as not hawkish enough. However, moves were tempered due to official intervention risk and warnings from Tokyo. Goldman Sachs revised down its 12-month USD/JPY forecast to 150 from 165.